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Travelers up after Q3 results; American Equity falls after refusing offer

One of the largest U.S. property and casualty insurers saw its shares jump after reporting better than expected third-quarter earnings.

Insurance stocks outperformed the broader markets for the week ending Oct. 23. The SNL Insurance Index rose 1.62% to 1,111.64, while the S&P 500 lost 0.53% to close at 3,465.39.

Catastrophe losses, the pricing environment and the ongoing effects of the COVID-19 pandemic are expected to lead the discussion at P&C companies as they report third-quarter results.

Travelers Cos. Inc. kicked off the season as it reported net income of $827 million, or $3.23 per share, compared to $396 million, or $1.50 per share, in the year-ago period. Core income climbed to $798 million, or $3.12 per share, from $378 million, or $1.43 per share.

The S&P Capital IQ consensus estimate for third-quarter normalized EPS was $3.07.

Travelers' catastrophe losses, net of reinsurance, increased to $397 million from $241 million a year ago. But the secondary effects of the COVID-19 pandemic are more than offsetting elevated catastrophe claims, Chairman and CEO Alan Schnitzer said during the company's earnings call.

Wells Fargo analyst Elyse Greenspan in a note said Travelers' earnings confirmed the positive pricing environment and the potential for the P&C industry as a whole to see a good amount of underlying margin improvement in 2021.

An active hurricane season, coupled with COVID-19 claims and the impact of "social inflation," will drive an upturn in the P&C pricing cycle, CFRA analyst Cathy Seifert said in a note. While the pandemic has hardened insurance pricing, the associated economic turmoil has dampened demand, especially for commercial lines coverage, Seifert said.

Travelers shares were higher by 11.16% for the week.

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Also this week, W. R. Berkley Corp. posted third-quarter net income to common shareholders of $151.7 million, or 81 cents per share, compared with $165.2 million, or 85 cents per share, in the year-ago quarter.

Executive Vice President and CFO Richard Baio on a conference call described the results as "strong" as the company deals with "ongoing complexities arising from the global pandemic and the heightened natural catastrophes facing the industry."

W. R. Berkley shares finished up 5.91%.

American Equity Investment Life Holding Co. was the week's worst performer after it rejected an unsolicited acquisition proposal by Athene Holding Ltd. and Massachusetts Mutual Life Insurance Co. and instead announced that it reached a partnership with Brookfield Asset Management Inc.

American Equity shares were down 18.79%.

Also among the big decliners was First American Financial Corp., which slid more than 11%. The company reported third-quarter net income of $182.3 million, or $1.62 per share, down from $187.2 million, or $1.65 per share, a year ago.

First American lost 11.06% this week.